Danisco Reports Drop in Earnings, Maintains Outlook

Despite Danisco’s relatively defensive nature, the company has felt the impact of the current economic downturn and are suffering from lower short-term earnings visibility.

19/03/09 In Q3 2008/09, Danisco recorded a 4% increase in group revenue and EBIT before share-based payments of DKK 209 million. Danisco said it will maintain the full-year group outlook for 2008/09 that was published in their recent trading statement early March.

CEO Tom Knutzen comments: ‘On 2 March 2009, we published three important stock exchange notices. The completion of the Sugar transaction marks an important strategic step for Danisco and was executed at a satisfactory price. As part of our efforts to restore profitability in Sweeteners we have announced structural initiatives allowing us to take concrete action for the division. And despite Danisco’s relatively defensive nature, we have felt the impact of the current economic downturn and are suffering from lower short-term earnings visibility. This has led to initiatives, including staff reductions, a salary freeze for 2009 and hiring restrictions across the organisation, as we act swiftly to defend our short-term profitability. However, this does not alter our strategic priorities nor challenge the fundamental strength of Danisco.’

Danisco reported that Food Ingredients posted a 2% Y/Y increase in revenue to DKK 2.1 billion for Q3 2008/09, reflecting a decline in organic growth of 3% Y/Y, a positive currency impact of 2% and an effect from acquisitions of 3%. YTD, the segment has seen organic growth of 5%, demonstrating the major change in demand witnessed by the company in Q3. EBIT for the segment came in at DKK 160 million against DKK 211 million in Q3 2007/08, a margin contraction of 2.6 percentage points to 7.6%. Destocking and cost containment efforts among customers, coupled with sluggish demand at the consumer level, contributed to this volume-driven slowdown and decrease visibility as the company moves into Q4 2008/09. "At the same time, we remain encouraged by the strength of our pipeline and expected benefits from lower raw material costs in the medium term", the company said. In terms of geographies, North America, Latin America and the Rest of the World performed well, while Asia-Pacific continued to decline Y/Y due to the negative impact of the melamine crisis and falling Sweeteners revenue. Europe felt the negative impact of the economic slowdown.

As a whole Danisco said that outlook for organic growth stands at around 4% for the Group. At currency
rates as at 31 January 2009, this corresponds to revenue of around DKK 13.0 billion. "We expect EBIT before share-based payments of around DKK 1.15 billion, corresponding to a margin slightly below 9%, reflecting a margin contraction in both Food Ingredients and Genencor", the company said.

Danisco's outlook is unchanged since its latest trading statement (04/2009, 2 March 2009). Thus, they expect profit for the Group to reach breakeven.